Ask the Expert

Is a McBusiness for You?

Doug Terwilliger, NEA Members Benefits

You’re retired.

So—you’re not working? Not necessarily—more and more people who retire turn around and start working again. You may, for instance, be thinking about buying a franchise—somebody else’s brand name and product and procedures, which you can essentially rent to make money to supplement your retirement income and have a good time doing it.

Many people dream of being an entrepreneur. By purchasing a franchise, you often can sell goods and services that have instant name recognition and can obtain training and ongoing support to help you succeed. But be cautious. Like any investment, purchasing a franchise is a risk.

A franchise typically enables you, the investor or “franchisee,” to operate a business. You pay a franchise fee, which may be several thousand dollars, and in return you are given a format or system developed by the company (“franchisor”), the right to use the franchisor's name for a limited time, and help.

For example, the franchisor may help you find a location; provide initial training and an operating manual; and advise you on management, marketing, or personnel. Some franchisors offer ongoing support such as monthly newsletters, a toll-free 800 telephone number for technical assistance, and periodic workshops or seminars.

While buying a franchise may reduce your investment risk by enabling you to associate with an established company, it can be costly. You also may be required to relinquish significant control over your business, while taking on contractual obligations with the franchisor.

Watch out for:

The Cost. Beyond the initial franchise fees, there may be royalty and advertising fees.

Controls. To ensure uniformity, franchisors typically control how franchisees conduct business. That may restrict your ability to exercise your own business judgment.

Terminations and Renewal. You can lose the right to your franchise if you breach the franchise contract. Also, that contract is for a limited time. There is no guarantee that you will be able to renew it.

Before investing in a particular franchise system, carefully think about how much money you have to invest, your abilities, and your goals. Consider the demand for the products or services, the likely competition, the franchisor’s background, and the level of support you will receive.

Be sure to get a copy of the franchisor’s disclosure document (also known as a Franchise Offering Circular) before you commit to anything. Under the FTC’s Franchise Rule, you must receive the document at least 10 business days before you are asked to sign a contract or pay any money to the franchisor.

You should read the entire disclosure document. Make sure you understand all of the provisions.

Talk to current and former franchisees about the time commitments required to have a successful business. Consult your lawyer about the potential risks of starting a business. You may also want advice from an accountant, banks and other financial institutions (on business costs), the Better Business Bureau (complaints about a specific franchise), and the state attorney general’s office (problems with the type of business you want to start).

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